A Paradigm Shift

Last Summer, I was asked by several local media outlets why I objected to the Shift BRT plan. My response was pretty consistent and quite clear.

I support the guiding principles of the Shift Rapid Transit Business Case. They include: building our community and economy, expanding our transportation capacity, improving mobility, and ensuring operational viability.

It is this last point – operational viability – that has me concerned. Specifically, the financial case that supported this BRT project. In my view, the Shift Business Case lacks sufficient information regarding the cost and risk of this project. I believe this missing information is critical to any City Council decision regarding this BRT project, the largest investment ever made in our community.

For example, the plan fails to include: a comprehensive list of assumptions that substantiate the financial case, the relevant data sources and references, a proper cash flow analysis, and most notably, a complete risk assessment should the project not proceed as planned.

So, in an effort to better understand the financial case behind this BRT project, I conducted my own analysis of the numbers in the hopes of answering four key questions:

What is the annual subsidy that London taxpayers will pay to support their new and improved transit system including BRT?

What are the financial risks that could increase the cost of this project even further?

What are the actual monetary benefits to taxpayers (e.g. Road widening)?

What are the opportunity costs of proceeding or not proceeding with Shift BRT?

Needless to say, given the limited amount of information in the original Shift BRT Business Case, this was not an easy task. Fortunately, to the credit of the London Transit Commission Board and Executive, I found a wealth of information on their website. I very much appreciated the level of detail and disclosure that they shared with Londoners. The Rapid Transit Integration Framework, prepared by Dillon Consulting, was particularly helpful. Based on the information available, my analysis concludes:

Londoners can expect their property taxes to increase by 4.6% for transit alone. These taxes are in addition to the City’s annual tax increase.

This tax-hike equates to about $167/year on the average $330k home. Double the amount for a $660k home, and so on.

After accumulating the annual tax-increase each year between 2019 and 2035, this average London homeowner will pay approximately $2,175 in additional taxes towards transit.

Risks

In addition to the above analysis, I assessed the risk of the various project components that should be of greatest concern to taxpayers. They include:

I. Development Charges

London’s $130 million contribution to Shift BRT is largely based on future development charges. Development charges are fees collected from builders to help pay for the cost of infrastructure necessary to provide municipal services to their new development, such as sewers, roads, etc. London currently has a healthy Reserve Fund to underwrite a portion of the initial BRT cost. However, it is not near enough to cover the entire project. Therefore, the City will have to borrow funds to make up the difference and hope that the housing market remains hot. If the market cools down, the City will be forced to raise taxes to cover the cost.

The intensification objectives of the Shift BRT plan are targeted in Downtown London. Essentially, the Shift BRT plan is designed to both encourage, and take advantage of, new development in downtown London. But according to our downtown’s Community Improvement Plan, builders should expect to recover their development charges over time. So if builders are getting their development charges back, what development charges are left to pay for Shift BRT?

II. Ridership

The Shift BRT Business Case projects ridership on London’s transit system to increase from its current levels of just under 23 million/year to over 31 million by 2035. First of all, there is ample evidence from other municipalities to suggest that such a projection may be overstated (e.g. https://www.theglobeandmail.com/news/politics/drop-in-transit-ridership-has-officials-across-canadastumped/article30178600/). But more importantly, these ridership projections subject Londoners to significant risk. Based on the Dillon report fare forecast, we can conclude that for every 2.6 million passengers the transit system falls below the 31 million projection, Londoners can expect to add another 1% to their annual tax increase to cover the underfunded operating costs. In other words, London taxpayers will be on the hook if ridership does not hit these heightened expectations.

III. Construction Costs

Some suggest that London’s Shift BRT plan will have the lowest construction cost of any BRT system ever built. While it’s difficult to truly determine whether the Business Case has captured all relevant construction costs, and it may ultimately be proven true, I’m troubled by that assertion, especially comparing the cost of our system to those already constructed. For example, if I generously divide the entire $500 million capital cost outlined in the BRT Business Case by the 23.7 Rapid Transit kilometres, the cost per kilometre equates to approximately $21 million/kilometre. Yet, according to a report by the Pembina Institute, (https://www.pembina.org/reports/fast-cities-report.pdf) the approximate cost per kilometre to construct similar systems in Montreal and Calgary averaged $30 million/kilometre. Federal and provincial governments do not cover construction overruns, so if Shift BRT does not end up having the lowest construction cost ever, London taxpayers would be on the hook to cover the overrun.

Benefits

It’s hard for anybody to actually monetize the societal benefits outlined in the Shift BRT Business Case, but I do believe that there is a financial benefit to London taxpayers having a portion of 24 km of road-widening and reset work effectively paid for by the federal and provincial government. Based on City’s Multi-Year Budget, this subsidy amounts to two-thirds of the $300 million projected cost to widen the Shift BRT routes. There is also some monetary benefit that should be attributed to mobility enhancing features as traffic light synchronization, and transit system interfaces. However, this amount should be netted against the aggregate incremental subsidy that Londoners will pay to install and operate an integrated transit system to determine the true benefit.

Furthermore, I question whether the City would proceed with road-widening on, for example, Richmond north of Oxford or Wellington north of Bradley, if this project was not approved. Clearly these main arteries need work, but I am personally not a fan of road-widening unless there is a strategic need, as all it does is fill up our streets with more vehicles. I would prefer to utilize these existing thoroughfares much more efficiently first, before considering the cost and consequence of adding more roads.

Opportunity Cost

This is arguably the toughest question to address, simply because the answer is highly subjective and the outcome completely unknown. I certainly appreciate the argument made by proponents of Shift BRT who assert that a failure by London to act now could compromise our city’s ability to introduce mass transit systems later. And they may be right.

However, I am of the view that the current Shift BRT plan binds our city to a costly investment that could compromise our community’s ability to invest in other priorities, such as better housing, neighbourhood and business district improvements, improved airport and rail systems connections, and economic development.

I do not believe in the adage “if we build it, they will come”. I would much prefer to build it as they come, and manage the risk accordingly to ensure that future generations of Londoners are not saddled with an expense that will take years to pay for.

The Paradigm Shift

Perhaps the issue of greatest concern to me now is the division the Shift BRT project is creating in our community.

At the Mayor’s State of the City address, the Mayor made it very clear that he is “all in” on this project. Conversely, Mr. Cheng has made it quite clear that he considers the Shift BRT plan a “fraud”. Even my arguments against the project have been pointed, and at times, inflammatory.

My fear is that if we continue down this divisive path leading up to the October election, we risk creating a permanent wedge in our community, making it incredibly difficult to govern and get anything meaningful accomplished.

So I’d like to change that:

I believe that the Shift BRT project team now in place is principled, passionate, and capable of delivering a quality transit system on behalf of our community.

I believe that after London City Councillors consider my assessment of the cost and risk profile associated with the current Shift BRT plan, a majority of them would be prepared to revisit their July 2017 decision, and consider a more measured alternative that meets our strategic goals with London taxpayers’ ability to pay in mind.

I believe that the Shift BRT team, if given the opportunity, can use the work they have completed to-date to create a more measured alternative.

I believe that the Federal and Provincial governments want London to succeed, and would be willing to amend their funding stipulations accordingly.

I do not want Shift BRT to be the lone focus of Londoners between now and the election in October. Our city has so many other challenges, such as declining incomes, abysmal labour participation rates, homelessness, drug-addiction, and increasing economic isolation. Our debate over Shift BRT will only continue to dominate our attention and distract us from addressing these debilitating challenges.

I am prepared to work with the Shift team, City Councillors, and any Londoner who wants i) a better transit system, ii) a better economy, and iii) to avoid a clash of die-hard pro- and anti-BRT forces that will only serve to harden attitudes and cripple our city. I believe that a more measured plan could go a long way toward advancing this strategic initiative, and repair the growing divide in our city.

We need to bring our community together to build a common-sense mobility plan, focus on our priorities, and work towards achieving our shared aspirations for this city.